Sunday, March 1, 2009

EFG-Hermes also unimpressed

Our Overall View Unchanged: Despite the more positive undertones of Mr Shaikh's message (Dubai's finance department director general), for the time being we prefer to keep with our base case view, i.e. that the government would do better to utilise the full USD20 billion of the bond programme. This is partially due to a lack of general disclosure which we believe warrants a less than optimistic stance. In addition, we are also aware of small inconsistencies in the message being delivered by the government. For instance, Marwan bin Ghalita (Chief Executive of RERA) stated that real estate developers would not need to draw on the bond programme. This is in contrast to additional comments made by Mr Shaikh that real estate companies would be among the main beneficiaries of state aid.

§Stock Market Impact: The stock and CDS market reactions to Mr Shaikh's comments have been largely muted. This is in line with our expectations and corresponds to what we have stated before. Given the current high levels of uncertainty, investors are unwilling to take state level reassurances at face value. What is required instead is either concrete action (such as the announcement of the bond programme itself) or a detailed level of information disclosure.

"Small inconsistencies" in the government's communication? Huge, glaring gaps and deliberate obfuscation more like it.